The Government is being urged to reveal if it is profiting by collecting tax on frozen Libyan assets that could be used to compensate IRA victims.

The value of frozen Libyan assets held by the UK has risen to £12bn and pressure is growing for the Government to release it to compensate victims of IRA attacks that used Semtex supplied by former dictator Colonel Muammar Gaddafi.

As yet, no UK victims have received compensation from Libya.

Following questions from the Northern Ireland Affairs Committee about the financial arrangements for the frozen Libyan assets, Foreign Office minister Alistair Burt has confirmed that they are not exempt from tax.

The committee has now written to the Chancellor, Philip Hammond, in an attempt to get concrete answers on the status of the frozen Libyan assets. For years, Jonathan Ganesh, a survivor of the 1996 Docklands bomb, has campaigned for financial redress for all IRA victims of Gaddafi's Semtex.

Yesterday he described the UK Government's stance as "deeply hurtful" for British victims, compared to the compensation secured from Libya by the French, German and US governments.

He said: "I'm completely baffled as to why the Government can't reveal if it's receiving tax on this money when it has a duty to the people who have elected them to reveal this information.

"It's unbelievable that they would refuse to answer the committee's simple question. For the victims who have been campaigning for over 12 years, it's deeply hurtful that the Government is staying silent.

"I'm sorry to say, but it's really becoming a very dirty and dishonest business now."

The chairman of the NI Affairs Committee, Dr Andrew Murrison MP, said Mr Burt's letter prompts more questions than it gives answers.

"It is inconceivable that the Government could profit from frozen Libyan assets but not use receipts to compensate victims. Compensation is needed now," he said. "My committee is pressing the Chancellor to tell us whether the Government has been collecting tax on the assets and related transactions and whether any funds or interest from the assets have been released."